Pace of Soviet Economic Collapse Is Accelerating
Only when the meat freezers, vegetable bins, fruit boxes and macaroni shelves at neighborhood groceries were all but empty in Moscow and Leningrad, the Soviet Union’s biggest and wealthiest cities, did people begin to accept the reality: The Soviet economy is collapsing.
Not just the food industry, not just agriculture or retail trade, but the economy as a whole is disintegrating faster and faster.
“How can we grow more grain than ever and have even less food than before in our stores?” Grigory A. Yavlinsky, a leading radical economist, asked. “The answer is simple, painfully simple--our economy is in systemic failure, and the pace is accelerating. . . .
“The connections between producer and consumer are being cut. The management structure is collapsing. State finances are in a shambles. There is an economic plan that everyone, even those who drew it up, ignores, but not a market they can go to instead.
“In these conditions, money loses its value, producers trade rather than sell their goods, consumers hoard whatever they can find. There is food, but not in the state stores. There are goods, but I can’t tell you when or where or at what price.”
Rarely, outside of war, say Soviet economists, has a modern industrial state been plunged into such a fundamental decline that its whole economy loses its cohesion and its very future is endangered. The only comparison they can make is to the Depression of 1929-34 in the United States and Europe.
Assessing the Soviet Union’s economic deterioration, a conference of 3,000 top enterprise managers warned the government last week that the outlook for 1991 is so bad that “industrial production will be halved, and the national economy may collapse.”
“Food, energy, heat and water supplies and transport services will be disrupted. Thousands upon thousands will find themselves in the streets without jobs,” they said.
They called upon President Mikhail S. Gorbachev to use his emergency powers, which enable him to rule by decree, to stabilize the economy before proceeding with further reforms and development of a market economy.
“The depth and complexity of the crisis gripping the Soviet Union do not give any grounds for expecting a swift resolution of the situation,” said Mikhail Gelvanovsky, an economist at the Institute of World Economics and International Relations.
Already, as the ruble loses value, the Soviet Union is turning to barter in even its most technologically advanced industries. Major enterprises are entering the new year with fewer than half their usual orders; key industries are lacking 60% or more of the inputs needed for production.
“The breakdown began months ago, and its tempo has been increasing,” said Otto R. Latsis, deputy editor of the Communist Party journal Kommunist. “As economists, we noticed, but most people would not see the significance of reduced oil production or fewer rail cars in circulation or unfulfilled orders for machine tools.
“Food, however, is different. . . . When food was not there, the dimensions of the crisis became clear rather suddenly and dramatically, and what alarmed the specialists now terrifies every housewife.”
Although official estimates put the decline in the Soviet economy, once the world’s second-most-powerful, at 2% to 3% this year, independent economists believe it will shrink almost 8%. They forecast that the “compression” next year could be as high as 13%, not the 3% growth for which the government hopes.
Evidence, often paradoxical, abounds for this more pessimistic assessment.
Production of consumer goods is rising faster than ever in Soviet history, yet the unsatisfied demand grows. The government is paying more for meat, grain and other agricultural products, but farmers prefer peasant markets where they can get even more for their produce. Factories are ignoring contracts and forming new relationships based on complex barter deals--aluminum for cars, cement for meat, paper for clothing and nothing for the rubles they would be paid under official contracts. Trains, the economic arteries of this vast country, are running slower and slower, with scores of 200-plus-car convoys abandoned on sidings, awaiting unloading.
The government’s budget deficit was brought within specified limits of $108 billion this year, but only through a massive loan from the State Bank, which in turn printed 2 1/2 times as much money as planned. Inflation is put at 7% a year by some government officials, 49% by others--and 80% by independent economists who take the ever-rising black market prices into account.
And the Soviet Union’s 15 constituent republics, each of which has declared its “sovereignty,” are all withholding goods they should ship elsewhere, 40% to 60% of their output, unless they get goods of equal value in direct return. That has set the pattern for regions within the republics and for trade between urban areas and outlying farms.
“We do not have a food crisis . . . in the sense of being on the brink of famine,” said Vladimir A. Tikhonov, a leading agricultural economist. “We have an economic crisis and behind it a political crisis and even a state crisis. The Soviet Union is in the process of deconstruction. . . .”
The economic system that grew over 70 years to define Soviet socialism is disintegrating. State ownership, central planning and government management of the economy are all going under Gorbachev’s reforms.
But the new economic system based on entrepreneurship and the market forces of supply and demand is developing at a halting pace, hampered by Soviet inexperience in managing such a vast transition and by a sprawling conflict among political forces contending to shape the country’s future.
“Destruction goes very quickly, and we have all but destroyed the old system,” said Yavlinsky, the radical economist. “Construction of a new system goes far more slowly. These days, we are living between those two economic curves, and the only term to describe this terrain is chaos .”
The collapse in the agricultural sector is characteristic. Farmers, freed from the old system of mandatory sales of produce to the state at fixed prices, now sell a minimum to the government and more on peasant markets where prices are negotiable, and hold a larger part to barter and for their families.
Ravil Nagumanov, a farmer from Armavir and member of the Russian Federation’s Congress of People’s Deputies, said collective farms increasingly choose to barter rather than accept payment in rubles: “We are throwing ourselves into exchanging meat for meal because the money the government gives is nothing.”
And what used to be a balky economic system now breaks down at every level.
“I don’t load the grain, so the (grain) elevators are empty,” Nagumanov said, “and so there is no feed corn, and so there are no pigs. The chain pulls itself along.”
Barter, however, is a difficult way to do business. Arkhangelsk in the far north needs feed for its livestock, but Krasnodar in the south, where feed is plentiful, is hoarding its harvest. Arkhangelsk is a major supplier of timber, but state-set prices are so low that it cannot get a fair exchange for what it needs.
Factory managers give similar accounts of how they cannot get raw materials, equipment, even the electricity they need to operate, and how they hold back their products to barter with suppliers for whom rubles mean nothing. Direct orders from superiors in the bureaucracy mean little more.
The system leads to absurd waste. An aluminum plant in the Siberian city of Bratsk, for example, could not buy cars it needed from the state agency that normally supplies them, reports the newspaper Komsomolskaya Pravda. The plant instead imported 170 Soviet-made Lada sedans from a Belgian dealer, trading 248 tons of aluminum for them. As a result, a Soviet-made car that costs $4,000 in Belgium was shipped back at the equivalent cost of $140,000 each.
“There is no painless solution, but there is a solution if we can overcome our political demagoguery,” said Latsis of the journal Kommunist. “It will take courage and determination by all of us, notably Mikhail Gorbachev.”
Latsis’ prescription, like that of most economic centrists, includes freeing prices, flooding the market with consumer goods and food, even if imported, and privatizing retail trade. The country’s massive personal savings, largely a form of suppressed inflation, must be absorbed through programs, starting with private home ownership. And there must be severe cuts in government spending, particularly on military weapons.
